“On Iran, the United States and China share the goal of preventing Iran from acquiring a nuclear weapon,” Clinton told U.S. and Chinese officials gathered in the Chinese capital.

“It is critical that we keep the pressure on Iran to meet its international obligations, negotiate seriously, and prove that its nuclear program is solely for peaceful purposes,” she said.

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China has also resisted calls from Washington and its Asian allies for stronger pressure on North Korea, its neighbor and long-time ally that recently launched a rocket that the U.N. Security Council said violated sanctions.

Clinton said Washington and Beijing should “work together to make it clear to North Korea that strength and security will come from prioritizing the needs of its people – not further provocation.”

On the first day of a meeting of the Strategic and Economic Dialogue on Thursday, the Chinese side put on the table a host of initiatives, the senior administration official said. Also among them: adopting international rules covering export credit, and cutting tariffs and taxes on consumer goods.

The talks have been overshadowed by a political drama involving blind activist Chen Guangcheng, who was released on the eve of the talks from the U.S. Embassy, where he had taken refuge. Mr. Chen’s future is now uncertain. The U.S. official didn’t comment on whether Mr. Chen’s case had arisen during the economic portion of the talks.

The official did say that Chinese officials were discussing a variety of significant economic changes that would further so-called economic rebalancing—relying more on domestic consumption and less on exports and investment—and would reduce the economic power of China’s huge state-owned companies. Earlier in the day, U.S. Treasury Secretary Timothy Geithner said, “China must rely more on domestic consumption rather than exports, and more on innovation by private companies rather than capacity expansion by state-owned enterprises, with an economy more open to competition from foreign firms, and with a more modern financial system.”

Along those lines, the senior U.S. official said Chinese negotiators made clear that they were considering a new round of cuts in tariffs and taxes on consumer goods as a way to spur domestic consumption. The official also said the Chinese were discussing increasing the dividends that state-owned firms are required to pay. Economists inside and outside of China have long argued that the additional revenue could be used to fund government spending on social insurance and pensions, which could reduce the needs of Chinese individuals to save as much as they do—roughly 30% of disposable income—and spend more.

In his opening speech, President Hu Jintao stressed that while China and US might not agree on all issues, they must respect each other’s core interests.

President Hu said, “Co-operation between China and the US will bring opportunities to both countries and to the world. Confrontation will only bring harm. No matter how the world has changed, or how much both countries have changed domestically, both of us should continue our cooperative partnership, and strive to develop our international relationship, in order to put Chinese and American people at ease and maintain world peace.”

If China and the US cannot make a breakthrough in dissolving strategic mistrust, all the efforts aiming to improve the bilateral relationship will amount to nothing since the relationship might be disrupted suddenly at any time.

It is a crucial time as for whether the suspicion will head toward mutual trust or strategic antagonism. The rising tensions in China’s offshore waters reflect this sense of urgency.

The US often complains about China’s opaque policies. But from China’s perspective, Washington’s policies are more uncertain, subject to not only administration changes, but also specific interests or whatever political mood is sweeping the nation at the time.

Since it is impossible for both sides to put solving strategic mistrust above domestic issues, they should delineate the red line that may be crossed as defending against each other, including actions that will not be tolerated.

US media often accuse China of being arrogant. It reflects their thinking of US’ interests being above all others. It needs to find a new balance point for bilateral ties, not hopes to extend the old way of bullying weaker countries.